RECENT TRENDS IN WATER QUALITY LITIGATION IN PENNSYLVANIA

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AMY L BARRETTE, a partner in Norton Rose Fulbright's Pittsburgh-Southpointe office, concentrates her practice in energy and environmental disputes. Ms. Barrette has significant experience representing oil and gas operators in state and federal courts on a wide variety of issues, including alleged contamination of water supplies, personal injury, contract, royalty, zoning, and lease disputes. Ms. Barrette also represents oil and gas operators in connection with investigations by and disputes with the Pennsylvania Department of Environmental Protection, as well as with appeals of Department actions to the Pennsylvania Environmental Hearing Board. Named to the Pittsburgh Business Times' "Who's Who in Energy" in 2015, Ms. Barrette is also active in the Marcellus Shale Coalition as a member of the Natural Gas Use, Water Sourcing, and Waste & Recycle subcommittees. She is the co-author of Chapter 21 ("Litigation of Natural Gas Claims from the Defendant's Prospective") of The Law of Oil & Gas in Pennsylvania (Pennsylvania Bar Institute, 2014). A native of western Pennsylvania, Ms. Barrette is a graduate of Duquesne University School of Law and Washington & Jefferson College.

JANET L. McQUAID is a partner in the Canonsburg, PA office of Norton Rose Fulbright. Her practice includes compliance counseling, enforcement defense, litigation, and transactions relating to environmental law, water rights, and oil and gas regulation. Janet has briefed and argued environmental matters before the state and federal district and appellate courts. She has represented clients in contested permitting and enforcement proceedings before the U.S. Environmental Protection Agency, the U.S. Fish and Wildlife Service, the U.S. Army Corps of Engineers, and state regulatory authorities in Pennsylvania, West Virginia, Ohio, Texas, and Colorado. Janet has also supported numerous transactions involving industrial and commercial facilities, including refineries, chemical plants, oil and gas properties, pipelines, mines, quarries, paper mills, dry cleaners, and many others. Prior to attending law school, Janet worked as an engineer for 11 years for Exxon, where she provided technical support in designing, building, and operating oil and gas exploration, production, and refining facilities.

Recent Trends in Water Quality Litigation in Pennsylvania: The Rebuttable Statutory Presumption of Responsibility for Pollution

I. EXECUTIVE SUMMARY

Pennsylvania's Oil & Gas Act contains a rebuttable presumption that the operator of an unconventional oil or gas well is responsible for pollution if the pollution occurs within one year after drilling in a water supply located within 2,500 feet of the vertical bore of an unconventional¹ well. For conventional wells, the presumptive time is six months and the distance is within 1,000 feet of the well. The balance of this paper will focus on unconventional wells.

Pennsylvania's Department of Environmental Protection ("PADEP" or "Department") has become increasingly aggressive in using the statutory presumption to order operators to replace or restore water supplies, in spite of operators' evidence rebutting the presumption. Moreover, private litigants have attempted to use the statutory presumption in common law negligence and negligence per se causes of action in an effort to relieve their burden of proving causation. In the absence of guidance from the state legislature or courts, operators can expect continued reliance by the PADEP to impose liability for alleged pollution of water supplies within a 2,500 foot radius of the well.

II. LITIGATION BETWEEN OPERATORS AND STATE AGENCIES IS A RISING TREND

Early in the development of the Marcellus Shale play, litigation related to water quality issues was initiated primarily by landowners. However, the more recent trend has been increasingly aggressive enforcement of statutes and regulations by state environmental agencies. Such litigation presents new challenges and risks for the industry because statutes and regulations give greater power and tools to the agencies than to private litigants, such as the statutory presumption of responsibility. Moreover, due to the recent advent of unconventional natural gas drilling in the northeast, the operation of many of these statutes and regulations has yet to be fully developed through litigation, leaving the parties and courts with little guidance and creating uncertainty for the industry.

A. Statutes and Regulations at Issue

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Pennsylvania is the birthplace of the oil and gas industry, beginning with the Drake Well in 1859. However, the statutes regulating oil and gas industry, as well as the case law related thereto, lagged behind other states, such as Texas, that had a more well developed body of statutes, regulations, and cases governing the industry.

In an effort to modernize the law governing oil and gas development in the Pennsylvania, the General Assembly in 2012 enacted a new Oil & Gas Act (the "Act")² to address issues raised by the recent boom in shale development. The Act addressed many facets of shale development, including local ordinances and zoning,³ impact fees collected from operators,⁴ and well construction standards and protection of water supplies.⁵ The Act also gave the state's regulatory body, the Pennsylvania Department of Environmental Protection, new or expanded enforcement authority and procedural tools to protect water supplies.

One such tool in the Department's arsenal is the statutory presumption of responsibility. The Act provides that an operator is presumed to be responsible for "pollution" of a water supply if the water supply is located within 2,500 feet of the vertical well bore, and "pollution" occurred within twelve months of the later of completion, drilling, stimulation, or alteration of the well.⁶ To rebut the presumption, the operator must "affirmatively prove" one of five defenses: (i) the pollution existed prior to the drilling, stimulation, or alteration activity as demonstrated by a pre-drill survey of the water supply; (ii) the landowner refused to allow access to the property to conduct a pre-drilling survey; (iii) the water supply is outside of the presumption area; (iv) the pollution occurred more than twelve months after the completion of drilling or alteration activities, or (v) the pollution was caused by something other than the drilling or alteration activity.⁷ PADEP's rules provide additional conditions on the opportunity to rebut relating to the scope and content of the pre-drill survey and notice to the PADEP.⁸

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Notably, the term "pollution" is not defined by the Act. The Department has sought to rely on the definition of "pollution" found in the Clean Streams Law, which defines "pollution" to mean "contamination . . . such as will create or is likely to create a nuisance or to render such waters harmful, detrimental or injurious . . . ."⁹ In practice, the Department will generally view an increase in concentrations of constituents in a water supply as "pollution," even if pre-drilling surveys demonstrate that constituents were present in the water supply before drilling above levels for which a primary or secondary Maximum Contaminant Level ("MCL" or "SMCL," respectively) has been established.¹⁰

Water sampling of private water wells in Pennsylvania often reveals the natural presence of constituents, including coliform, methane, iron, manganese, and other metals, which occur naturally in the subsurface, often in widely varying and fluctuating concentrations.¹¹ Many water wells in Pennsylvania are decades old,¹² and this, combined with the rural and agricultural

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character of the land where oil and gas development has occurred, increases the probability that water quality will fluctuate in water supply wells due to circumstances unrelated to oil and gas drilling. PADEP's interpretation--that fluctuations in water quality constitute "pollution" under the Oil & Gas Act--may obviate, in some cases, the statutory opportunity for an operator to rebut the resumption of responsibility.

Neither the courts nor the Environmental Hearing Board ("EHB")¹³ have ruled on the PADEP's interpretation. The absence of a definition of pollution in the Oil and Gas Act has allowed the Department to be aggressive in determining what impact to a water supply constitutes pollution. Thus, even if an operator can demonstrate via pre-drill sampling that a particular constituent was present in the water supply above a primary or secondary MCL, the Department will not necessarily accept that the operator did not "pollute" the water supply, if the level of that constituent increased as evidenced by a post-drill sample.

The Act and state regulations¹⁴ promulgated thereunder give the Department the authority, if the presumption applies, to order an operator to restore or replace a water supply that has been polluted or diminished.¹⁵ The restored or replaced water supply must meet water quality standards set forth in the Pennsylvania Safe Drinking Water Act ("SWDA"),¹⁶ or must be comparable to the quality of the water supply before it was affected if the water supply did not meet the standards of the SDWA.¹⁷ Moreover, the restored or replaced water supply must be as

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reliable and permanent as the previous water supply, must not require excessive maintenance, must provide the user with as much control and accessibility as exercised over the previous water supply, and must not result in increased costs to maintain.¹⁸ Aside from these requirements, the statutes and regulations do not mandate that an operator use a particular method of restoration or replacement. Instead...